Red Hat CEO Optimistic about OpenShift Kubernetes Revenue Growth

2Q18 revenue comes in at $723 million, with container and OpenStack cloud offering continued growth opportunities.

Red Hat made its first billion in revenue largely based on Linux, but as the company continues to evolve, a lot of future growth is likely to come from its OpenShift Kubernetes container business.

Red Hat reported its second quarter fiscal 2018 financial results on Sept. 25, with revenue coming in at $723 million for the quarter, for a 21 percent year-over-year gain. Net income was reported at $97 million, up from the $59 million reported in the second quarter of Red Hat's fiscal 2017.

Looking forward, the company provided third quarter guidance for revenue to be in the range of $730 million to $737 million.

Among the metrics Red Hat reports in its earnings calls are the number of deals greater than $1 million. For 2Q18, Red Hat had 66 deals of $1 million or more, and four deals were greater than $5 million.

Red Hat CEO Jim Whitehurst commented on his company's earnings call that on-demand Red Hat Enterprise Linux (RHEL) revenue from public cloud provider partners now exceeds $200 million in annualized run rate and is growing twice as fast as the company overall.

OpenShift Showing Signs of Promise for the Future

Whitehurst is particularly enthusiastic about Red Hat's OpenShift Kubernetes platform, which provides container orchestration and management capabilities. In his long-term view, OpenShift could become Red Hat's second largest revenue generator in the sense that it will be the platform for running containerized applications.

"If you believe containerized applications will be kind of how applications are developed in the future, it will be a substantial opportunity," Whitehurst said. "There is a lot of value in it [OpenShift], because it includes RHEL, it includes a fully supported life cycle Kubernetes and a whole set of management tools, and then, obviously, above that a whole developer tool chain."

Whitehurst added that he expects OpenShift will be a substantial contributor for Red Hat going forward, assuming containers continue to evolve the way they certainly seem to be developing right now. He's also confident Red Hat will continue to have enough developers to satisfy the company's engineering needs.

"There is a resource constraint in terms of upstream development, and we have a great set of contributors to Kubernetes," Whitehurst said. "We're the second largest contributor to the project overall, and we think we’re a great home for talent who is committed to and wants to contribute to open source."

OpenStack Also on Continued Growth Trajectory

While Kubernetes is the hot new area, Red Hat's OpenStack cloud business is still growing as well. Whitehurst said Red Hat had three seven-figure telco-related wins for OpenStack NFV (network function virtualization) deployments in Europe.

From a competitive perspective, Whitehurst said he's no longer seeing Red Hat's Linux distro competition vendors being a major factor in OpenStack business bids.

"Most of the major distribution vendors have kind of pulled out or de-emphasized it," Whitehurst said. "Our biggest competition right now with OpenStack, especially in telco, are roll-your-own or people who are looking for a full Huawei stack."

Huawei is also a Red Hat partner, though Whitehurst noted Huwaei has its own FusionSphere distro, which works on their hardware.

"I think we had about 12 of our top deals had a significant OpenStack component associated with them," Whitehurst said.

RHEL Remains the Foundation for Red Hat

Though OpenShift for containers and OpenStack for cloud are exciting growth areas, the core of Red Hat's business remains its flagship Red Hat Enterprise Linux platform.

"Much of our business ends up being driven around the RHEL renewal, where we add other things to it," Whitehurst said. "Virtually every materially sized company has a material amount of RHEL in there, and so there’s a discussion that happens around renewal time, and that’s often a time that we bring in new products."

Sean Michael Kerner is a senior editor at ServerWatch and InternetNews.com. Follow him on Twitter @TechJournalist.

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